Alaska Air plans cuts as fuel prices hit bottom line

Alaska Airlines will cut management jobs by 5 percent and reduce seat capacity as much as 10 percent to "help us survive what is shaping up to be the most difficult period in commercial-aviation history," Alaska Air Group Chairman and Chief Executive Bill Ayer said Thursday.

The Seattle-based parent of Alaska Airlines and Horizon Airlines also will raise fares and other fees.

Alaska's frequent-flier program will increase mileage requirements on or after Nov. 1 to receive awards and will add a $25 fee for redeeming travel miles on another airline. The popular domestic round-trip "Coach Saver" award that has been available at 20,000 miles is increasing to 25,000 miles.

About 80 management jobs at Alaska Airlines are likely to be cut, Chief Financial Officer Bradley Tilden said on a conference call after the company announced second-quarter financial results. Details of the cuts in flights are still being worked out.

Alaska Air reported that excluding special items, it had a quarterly loss of $14.1 million, or 39 cents a share, compared with a profit of $47.2 million, or $1.16 a share, in the second quarter of 2007.

With special accounting items included, among them a profit on its fuel-hedging contracts, Alaska had a second-quarter profit of $63.1 million, or $1.74 a share. That's compared with a profit of $46.1 million, or $1.13 a share, in the year-earlier period.

The company's stock dived Thursday, sinking $1.77, or 9.4 percent, to $17.08.

Alaska Air's regional carrier, Horizon, shrank its management roster by 13 percent this year and cut some flights. It plans further reductions in operational and management jobs and more capacity cuts, Alaska Air said in a statement.

"Skyrocketing fuel prices have eclipsed the improvements we've worked so hard to achieve in every area of our business," Ayer said in the statement.

On the conference call, he acknowledged that increased competition from JetBlue and Virgin America has "created a drag" on revenues and prevented Alaska from increasing fares to recoup more of its rising fuel costs.

But the company will do what it can to raise ticket prices, he said. "With oil at $130 per barrel, the un-hedged cost of fuel to fly one passenger from Los Angeles to Seattle is approximately $66 on a 737-800 and about $69 on an A320. That means that $79 fares simply don't work."

Ayer said Alaska's strengths include more than $1 billion in cash and short-term investments, and hedging positions that cushion the shock of fuel-price increases, especially through the end of 2008. And he noted Alaska Airlines has improved its on-time record, crediting "a major turnaround in our Seattle operation."

If the price of jet fuel, which has dropped 10 percent since July 15, keeps falling, "that would be great news, but given where we are today, we think this is the prudent action to take," Ayer said on the call.

Whether capacity will be cut by grounding aircraft or reducing flights will be announced in September, he said. The company expects trimming the Alaska Airlines jobs to save about $7 million annually.

Delta Air Lines said Thursday it will provide engine overhaul and repair services for Alaska Airlines in a seven-year, $200 million deal. Delta said its maintenance division, Delta TechOps, will service the CFM56-7 engines that power Alaska's fleet of Boeing 737-700 and 737-900 aircraft.

Information from Bloomberg News and The Associated Press is included in this report.